In Sarbanes-Oxley Era,
Running a Nonprofit
Is Only Getting Harder

By

Carol Hymowitz Staff Reporter of The Wall Street Journal

Updated June 21, 2005 12:01 a.m. ET

As president of New York's prestigious Juilliard School, Joseph Polisi gets to hang out with actor Robin Williams, opera singer Ren&eacute;e Fleming and other famous alumni in the performing arts. But he also has to know how to analyze a balance sheet, negotiate faculty contracts, oversee big fund-raising drives and achieve consensus among the school's 26 trustees on issues ranging from curriculum to the current $150 million capital campaign and campus expansion.

Business executives who worry about meeting growth targets every quarter may think they would have fewer headaches running a nonprofit. In fact, the job is more stressful than ever as more nonprofit groups compete for limited funding. And while juggling myriad personnel and other duties, heads of nonprofits also feel pressured to strengthen governance practices and codes of ethics. In this post-Enron era, many nonprofits, including Juilliard, have adopted the governance practices laid out in Sarbanes-Oxley, the 2002 corporate reform law.

"Sarbanes-Oxley doesn't apply to nonprofits, but like ink in water it's changing the way they operate," says Charles Elson, director of the University of Delaware's Weinberg Center for Corporate Governance. "Suddenly you've got accounting firms that audit nonprofits clamoring for the same financial controls now in place at for-profits." And nonprofit trustees want more transparency. Although they're exempt from financial liability in most states except in cases of fraud, they worry that in this climate their reputations could be hurt if money is misused or the organization falters.

At the International Swimming Hall of Fame in Fort Lauderdale, Fla., Bruce Wigo, who was named president and CEO last month, says he plans to adopt Sarbanes-Oxley practices to restore credibility. Swimming legends Mark Spitz, Donna de Varona and 25 other honorees last year threatened to remove their memorabilia from the group's museum unless former President Sam Freas, who had been in the post 15 years, stepped down. Among the honorees' concerns: an endowment that had dwindled to $400,000 from $1 million and shabby upkeep of museum displays. "I decided to retire because the honorees wanted more emphasis on museum exhibits than my philosophy of encouraging people to swim," Mr. Freas says.

Mr. Wigo, who was formerly executive director of USA Water Polo, persuaded all 21 directors to resign so that he could get a fresh start with a scaled down 10- to 15-person board. Along with Mr. Spitz, who agreed to become chairman, and Ms. de Varona, he hopes to recruit business executives to the board who can review accounting audits and help with fund raising.

At Juilliard, Mr. Polisi has long stressed transparency and board involvement while improving the school's artistic and financial standing with dozens of initiatives. A bassoonist who is the son of a bassoonist and a ballet dancer, he took the helm 20 years ago when he was 36. During his interview for the post, he told directors that Juilliard should be more caring toward its students, prepare them more realistically for arts careers and connect more with the surrounding community. "I never expected to get the job, so I wasn't very politic, but they apparently agreed with me," he says.

At the time, Juilliard focused heavily on training classical piano and string soloists, even though few graduates could earn a living as solo performers. Most students were commuters who spent a lot of time in private practice rooms and rarely performed together or in other venues in New York.

Under Mr. Polisi's leadership, Juilliard built a dormitory, began offering student health and mentoring services, started encouraging students to teach in inner-city schools, and broadened its curriculum to include more liberal arts. But sometimes Mr. Polisi has had to wait patiently for directors and faculty to come around to his ideas. When he proposed a capital campaign in 1994 aimed at increasing student financial aid and faculty pay, "I thought it was going to be a cakewalk, but [getting approval] took a lot of discussion," he says.

Mr. Polisi urges students to be advocates for the arts in public speaking as well as performances, and he wants them to take risks. "Fear of failure -- of playing the wrong note or getting a bad review -- is enormous," he says. "So we intentionally give students challenges -- a very difficult play or piece of music -- and say, 'Dive in, you may come to a precipice but instead of falling maybe you'll fly and, at the very least, you'll grow enormously.' "

Juilliard is celebrating its centennial year, and Mr. Polisi hopes the school can raise more money for student scholarships. But he disagrees with executives at some nonprofits who think they should get bonuses if they bring in a certain amount of money. "If I did that it would give the impression that I was the one responsible for getting the money when it's the quality of performances [at Juilliard] that hooks donors," he says.

Citigroup CEO Charles Prince, who joined Juilliard's board last year, says he believes that heads of nonprofits carry "even more of a burden of responsibility" than corporate executives. "They don't have the check and balance of shareholder activists showing up at annual meetings to point out problems," he says.

ABOUT CAROL HYMOWITZ

Carol Hymowitz writes about leadership challenges and conflicts three Tuesdays a month in In The Lead. As a senior editor in New York, she supervises a group of reporters in several cities. In her 20 years with the Journal as a reporter and editor, she has covered many industries -- including steel, retail, banking, and manufacturing -- as well as management and workplace issues.

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